Global Investment House near default, says Fitch

Kuwait's Global Investment House misses a loan payment and may face default, says Fitch Ratings.

One of the largest investment companies in Kuwait has missed one of its loan payments and may face default if it is unable to service the loan by today, according to a leading ratings agency. Fitch Ratings lowered its rating on Global Investment House (GIH) to one notch above default after the company on Monday informed the agency that it had missed a -payment due on Dec 15. Neither Fitch nor GIH would specify the size of the payment or the loan. Maha al Ghunaim, the managing director and chairwoman at GIH, said she was "confident this is a temporary situation and Fitch will be fully satisfied and will resolve their reviews shortly". Regional banks have faced difficulties securing funding as the international loans they had previously depended upon have all but dried up. "Things have deteriorated very quickly," said Robert Thursfield, a sovereign analyst at Fitch. "It's obviously an indication that there are serious stresses in the market, and unless you've got a significant deposit base, you're more likely going to face big problems." While GIH would be the first major Gulf financial institution dragged into default by the financial crisis, Fitch's announcement came amid mounting evidence that the credit environment is deteriorating. Moody's Investors Service, another ratings agency, said on Monday that three UAE banks may face lower credit ratings. Moody's lowered its outlook on ratings for three local banks, Abu Dhabi Commercial Bank (ADCB), First Gulf Bank (FGB) and Dubai Bank. GIH announced today it had taken steps to renegotiate the terms of its existing loan facilities with the help of the Commercial Bank of Kuwait, and had called for a meeting with the lenders next week. The original terms of the loan gave GIH an extra 72-hour grace period following the due date of Dec 15, Fitch reported. The agency's decision to downgrade the bank was based on the expectation that it had only until Thursday to come up with the money. In a statement, Fitch said the rating action followed Global's inability to meet an obligation due on Dec 15 due to cash flow problems. "Global is in negotiations with local financial institutions to refinance the above facility. Fitch understands that other obligations will also fall due in December," said the agency. GIH had been hit especially hard by the credit crunch, because its funding strategy relied heavily on international lending, which had become scarce in recent months, analysts said. GIH said it had US$3 billion (Dh11bn) in debt and $10bn in assets under management. The company's stock fell 6.58 per cent today to 355 Kuwaiti dinars (Dh4,776), down 60.5 per cent this year. "A GCC bank defaulting would be a first for this crisis. Given the ample funding the government has to interfere, it would really surprise me if they don't come up with the money," said Eckart Woertz, an economist at the Gulf Research Center. The Central Bank of Kuwait earlier this month asked local lenders to contribute $1bn into a fund dedicated to helping GIH make its payments, according to the Kuwait daily, Al Qabas. In a separate report on the Kuwaiti banking sector released today, Moody's said: "the steep drop in the local and regional stock markets, together with the drying up of international and, to an extent, the local interbank market, has caused severe problems for Kuwaiti investment companies." If the Kuwait real estate market continues to decline, that could lead to an increase in the number of loan delinquencies, which would weigh heavily on Kuwaiti banks' performances, Moody's said. Moody's lowered its outlook for Abu Dhabi Commercial Bank (ADCB) and First Gulf Bank (FGB) - the third and fourth-largest banks in the UAE by assets, respectively - to "negative" from "stable". It also lowered the outlook for Dubai Bank (DB), a privately held Islamic bank, to "stable" from "positive". Ali Khan, the executive director at Dubai-based Arqaam Capital, said the rating change regarding UAE banks was much less drastic than the revision to GIH's rating. "We're not talking about any potential defaults here in the UAE," he said. Moody's said its decision was based on evidence that the global financial crisis could lead to more instability in the stock markets and property sector. This could negatively affect the asset quality and profitability of local banks, when coupled with a shortage of international funding. "Moody's recognises that the current asset quality and profitability levels reported by all UAE banks... may be negatively affected," wrote John Tofarides, a ratings analyst at Moody's. "Looking ahead, the operating environment in the UAE is faced with increasing challenges emanating from the volatility in both the equity and real estate markets." Moody's said there was increasing evidence that the demand for properties in the UAE had dwindled significantly due to negative sentiment, a lack of affordability and poor systemic liquidity. "Moody's expects these trends to continue." ADCB's stock has declined 55.2 per cent this year, to Dh2.39 a share, while FGB's stock has fallen 53.3 per cent, to Dh9.43 a share. [e-mail]